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An Early Morning Trader Strategy

1. The Opening Range Breakout (ORB) strategy trades stock price breaks above or below the high and low prices set within the first hour or half hour of market opening. 2. Traders look to enter positions if the stock price closes above the opening high or below the opening low on a 5-minute candle, accompanied by increased trading volume. 3. Profits are taken if the stock price closes below the 20-period exponential moving average on long positions or above it for short positions. Initial stop losses are set at the opening high or low.

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Sasikumar Thangavelu
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422 views

An Early Morning Trader Strategy

1. The Opening Range Breakout (ORB) strategy trades stock price breaks above or below the high and low prices set within the first hour or half hour of market opening. 2. Traders look to enter positions if the stock price closes above the opening high or below the opening low on a 5-minute candle, accompanied by increased trading volume. 3. Profits are taken if the stock price closes below the 20-period exponential moving average on long positions or above it for short positions. Initial stop losses are set at the opening high or low.

Uploaded by

Sasikumar Thangavelu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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An Early Morning Trader Strategy: The

Opening Range Breakout


There is a very popular strategy called ORB (Opening Range Breakout) which
intraday traders use to attempt to profit from the day’s opening action.

We present below a simple overview of one could formulate this strategy at their
end OR maybe use one of the free screeners available on the internet.

The Trading Strategy

ORB is a well known concept discovered by Toby Crabel. It is a variation of his


classic N-bar breakout system and is one of the simplest day trading set-ups to
understand.

The first hour / half hour of the trading day is the most volatile – This is calling the
Opening Range. As bears and bulls battle it out for controlling the day, the volatility
creates a price-range one can trade from, using it as the basis for decision making.

ORB trading has several variations practiced by traders all over the globe. Some
traders trade on a significant breakout from opening range, while others trade
immediately on opening range breakout. The initial time window for the trades also
varies from 30 minutes to 3 hours though quite a few prefer a one hour time
window.

The highs and lows of this opening time frame are taken as support and resistance
and the basic rule is essentially very simple.

1. Buy when the stock moves above the Opening Range high.
2. Sell when the stock moves below the Opening Range low.

Possible General Rules

Each trader has his or her own preference but common rules mostly have similar
elements. Amongst them is the use of the 5 minute candle – Entry in a trade could
be made on close of the first 5 min candle outside the opening range accompanied
by Volume confirmation – that is, the Breakout candle should show increase in
volume .
An optional confirmation could be via any of the two popular indicators – MACD or
Stochastics apart from a cross of the 5 EMA (exponential moving average).

Traders may use a 5 min chart with 5 EMA / 20 EMA to start making trading
decisions.

Possible Rules for Buy

• Stock should be trading above the 20 EMA line before the breakout.
• Buy when the 5 minutes candle closes above the opening range.
• 5 EMA line should be above the opening range at the time of breakout.

Booking Profits

When the 5 min candle closes below the 20 EMA in the case of longs and vice versa
for sells.

Stoploss
The Initial Stoploss could be kept as the low of the Opening Range while trailing
could be at the 20 EMA level. A close of 5 min candle below 20 EMA confirms exit.

Additional conditions

The Opening Range breakout is above previous day’s high for buy while The
Opening Range breakout is below previous day’s low for sell.

• Trade is in the direction of higher time frame charts (15 min /30 min).
• Overall Market is moving in the direction of the trade.
• Opening range breakout happens after brief period of consolidation.
• Always exit at the end time of the day.

Important

• If the opening range is too wide, better do not trade ORB, since the Stops will
be very far in the system.
• Avoid Opening Range Breakout trades in case of a heavy news flow day.

Using this strategy


The strategy is essentially a simple one so don’t over complicate it by adding too
many indicators – use your shortlisted stocks and focus only on those for the day.
And keep tight non negotiable stoplosses – and diversity in trades.

One could make an excel out of the above or use any of the free screeners available
on the internet which allow you to (example, https://chartink.com/screener/orb)
customize the trade criteria.

Follow and observe the results for some days using paper trading or if you are
advanced, you may want to back test these on a system like Ami broker.

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